MContent

Jon Rice

Cash has no intent. Cash is neutral.



Bank notes are, in fact, non-sentient, and undiscerning about their ownership.



A twenty spot doesn’t care if you buy gasoline with it, bribe a border control officer with it, or shove it up your nose and snort cocaine with it. (Not life advice.)



And nobody in the US government is trying to ban cash. Because that would be idiotic.



Cash can be used in criminal activities. But cash is not criminal. Criminals are criminal, and sometimes criminals use cash, so we’ve found lots of ways as a society to make trade-offs with cash, like putting limits on how much you can carry in and out of the country.



This makes it somewhat harder for criminals to use, without making it impossible for the vast majority of us who simply find it handy to occasionally buy stuff with bits of paper.



If it seems obvious where I’m heading with this, consider yourself smarter than some of the people in Congress who haven’t yet grasped the logic of my parallel argument.



Here it is:



Crypto has no intent. Crypto is neutral.



Crypto is, in fact, non-sentient, and undiscerning about its ownership.



<s>And nobody in the US government is trying to ban crypto. Because that would be idiotic.</s>



Crypto can be used in criminal activities. But crypto is not crim… okay, you get the point.



Here at Blockworks, we have an editorial policy that you may find interesting.



For the most part, we do not cover conventional crimes in which the only connection to our industry is the fact that crypto is used as a means of value exchange.



Why not? For the same reason that American Banker does not cover crimes in which cash is used as a means of value exchange.



It’s irrelevant. It’s not novel, or interesting. Almost without exception, the crime is the story, not the way value is extracted or exchanged.&nbsp;



And we’re not a news outlet that covers crime for titillation.



The fact is, criminals need to exchange value, just like the rest of us. They will use cash when it’s convenient. Diamonds. Bearer bonds. Cryptocurrencies. They will barter away secrets, trade in weapons, even traffic human beings.



Because criminals are criminal.



But diamonds, bearer bonds, and cryptocurrencies are not criminal. They are simply things of value.



So when Elizabeth Warren (yes, <a href="https://blockworks.co/news/elizabeth-warren-crypto-web3">her again</a>) starts up with her <a href="https://markets.businessinsider.com/news/currencies/crypto-fentanyl-china-overdoses-us-opoid-crisis-elizabeth-warren-2023-6">hyperbolic nonsense</a> about how crypto enables the Fentanyl trade, you can be sure that this is as idiotic as it sounds.



And since Elizabeth Warren is not an idiot, you can only assume that her rationale for saying such an idiotic thing is malintent.



It’s fair to say that some criminals use cryptocurrency in the course of their criminal actions.



And as Senator Warren is well aware, it’s also fair to say that some criminals use cash to finance their operations. And some use credit cards. And some use offshore bank transfers. And so on. (At least blockchain gives law enforcement a path right to the criminals’ money, in many cases.)



Crypto is a neutral technology.



But people can be good or bad.



And people can also be downright dumb, like the fearmongers who would have you believe that if you ban crypto, there’s no Fentanyl trade.



I grew up with Miami Vice.



Pretty sure there was no crypto in those days. Pretty sure there were plenty of drugs.



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This op-ed was originally published in the Blockworks newsletter: Subscribe below.



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Ban Crypto, And America’s Drug Problem is Solved – Bingo!

Miguel Morel

This op-ed is in response to <a href="https://blockworks.co/news/blockchain-privacy-surveillance-zk">a previous op-ed on blockchain’s danger to user privacy</a>.



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The cryptocurrency ecosystem is currently experiencing a <a href="https://www.bedrockcap.com/letters">narrative mirage</a>. 



For years, those following the space have believed in, and at worst relied upon, the illusion of crypto anonymity. This illusion — that crypto provides an untraceable alternative to the traditional banking system — mostly finds its origins in news stories about the early Bitcoin criminal underworld.&nbsp;



Misunderstandings perpetuated by the <a href="https://nymag.com/intelligencer/2017/12/what-is-bitcoin-a-guide-for-the-confused.html">mainstream media</a> about the fundamentals of <a href="https://blockworks.co/tag/blockchain">blockchain</a> technology have generated misconceptions in the public’s mind about the level of privacy these cryptocurrencies provide by default.&nbsp;



For many, the idea that cryptocurrencies were built on fully auditable public ledgers remained a technical afterthought, rather than a tangible reality with practical implications for privacy and info security.&nbsp;



While people were vaguely aware that cryptocurrencies weren&#8217;t perfectly anonymous and that government agencies <a href="https://www.npr.org/sections/thetwo-way/2015/03/30/396382304/ex-feds-accused-of-pocketing-bitcoins-during-investigation">might be monitoring</a> <a href="https://blockworks.co/news/blockchain-intelligences-frosties-scam">criminal transactions</a>, a general faith in anonymity persisted despite the existence of a permanent, public record of all blockchain transactions, allowing anyone to analyze and link activities to an identity.&nbsp;



The rise of public blockchain intelligence is beginning to shatter this narrative.&nbsp;



Every day, the adoption of services such as ENS, which are often linked to real-name Twitter accounts, shows that crypto users are eagerly and purposefully tying their identity to their cryptocurrency activity — and that the paranoia for privacy lives mostly in the minds of a niche group of ideologues.&nbsp;



But this doesn’t imply that the tools these ideologues create to chase their hopes and dreams, such as Zcash or Monero, will cease to exist. Like other privacy tools across the internet, such as <a href="https://www.telegraph.co.uk/technology/2016/02/02/dark-web-browser-tor-is-overwhelmingly-used-for-crime-says-study/#:~:text=Dark%20web%20browser%20Tor%20is%20overwhelmingly%20used%20for%20crime%2C%20says%20study,-By%20Cara%20McGoogan&amp;text=There%20is%20an%20%22overwhelming%22%20amount,anonymity%20of%20vulnerable%20people%20online.">Tor</a>, these <a href="https://blockworks.co/news/the-purpose-and-perils-of-crypto-privacy-tools">tools</a> can continue to exist in parallel with the rest of the clear-net to cater to an eccentric group of users with more esoteric use cases.&nbsp;



<h2>Going public</h2>



Blockchains are the richest trove of public financial databases to ever exist, creating immense value for blockchain analytics companies and their users — and privacy activists across the ecosystem fear what incentives and implications this could bring.



Read more from the other side of this privacy debate: <a href="https://blockworks.co/news/blockchain-privacy-surveillance-zk">Want Privacy? Don’t Use Blockchain Yet</a>



Yet despite the negative views promoted by these activists, crypto users continue to show — simply by which products they actually use — that these fears are misplaced. It seems that people care more about utility and ease-of-use than they do about privacy.&nbsp;



This mirrors what happened on the internet, where the transition from pseudonymous mailing lists to being ok with putting your public identity online spurred a new wave of highly usable platforms such as Facebook.&nbsp;



In the same way, a new era of companies focused on crypto identities and their activity has dawned. This too will unlock a market for new companies whose products and services bring increased adoption.&nbsp;



Ultimately, our industry will grow healthier as a result of cryptocurrency economies knowingly and willingly moving toward real identities and a ubiquitous adoption of tools that allow crypto activity to be easily seen and understood by others.&nbsp;



This path forward will destroy the fictitious public image of crypto as a shadowy world of anonymity, allowing participants to focus on other use cases for this transformational technology — and alerting those who continue to have an interest in privacy to search for tools that actually serve their end goals.



<hr class="wp-block-separator has-alpha-channel-opacity"/>


<div class="wp-block-post-author-biography">Miguel Morel is a technology entrepreneur. He is the founder and CEO of Arkham Intelligence, a data analytics company that is deanonymizing the blockchain, backed by Bedrock Capital and the founders of Palantir and OpenAI. </div>


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Actually, No One Really Cares That Crypto Isn’t That Private

Darren Kleine

Is there a better way to gauge public sentiment these days than by Twitter poll? It seems to work pretty well for Elon Musk, anyway.



In a recent <a href="https://twitter.com/santiagoroel/status/1663620846185766914?s=20">tweet</a>, seed investor Santiago R. Santos pitched investment possibilities to followers, asking what he should build in order to “have the most impact” in the <a href="https://blockworks.co/tag/crypto">crypto</a> industry. The preferred choice won by a landslide.



The large majority — 77% of the more than 2,000 votes — were in support of building a new “crypto-friendly bank.”&nbsp;



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">I have a growing desire to build something in crypto beyond investing my own capital and education thru the Empire podcast. I have a few ideas and thought it would be good to open source the process of what I do next by gathering external input. This is the commencement of that…&mdash; Santiago R Santos | #9159 (@santiagoroel) <a href="https://twitter.com/santiagoroel/status/1663620846185766914?ref_src=twsrc%5Etfw">May 30, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



The recent collapses of <a href="https://blockworks.co/news/signature-silicon-valley-bank-made-whole">Silicon Valley Bank</a>, <a href="https://blockworks.co/tag/signature">Signature</a> and <a href="https://blockworks.co/tag/silvergate">Silvergate</a>, the most prominent crypto-friendly banks in America, <a href="https://blockworks.co/news/operation-choke-point-2-0">left a vacuum in the space</a> for industry clients. Santos spoke to Blockworks on <a href="https://www.youtube.com/watch?v=4MHwnbLSxAs">the Empire podcast</a> about his plans to fill the void.



Santos prefaces the conversation by confiding he’s not “a good builder,” but is a “better investor.” He chuckles as he says this is “probably the worst time” to start up a crypto-friendly bank, “given everything that&#8217;s going on.”



“Every small bank is collapsing.”&nbsp;



“It’s really hard,” he says, “specifically if you want to do crypto stuff — Signature’s down, Silvergate’s down,” along with a number of traditional banks.



<h2>Rebuilding something that actually works</h2>



But Santos says when he looks at the current precarious situation, he is inspired to build.



The investor admits that he has no interest in directly running a bank. “There are smarter, more competent people to do that,” he says. His role would be to assemble a team and guide it with everything that he’s lived through “over the years in crypto” and from his experiences in traditional finance.



“Someone&#8217;s gonna pick up the ashes and rebuild something that actually works.”



Asked whether he’s envisioning a business or consumer-focused banking service, Santos replies that he imagines building “an everything bank,” servicing individuals who are on and off-boarding from crypto, as well as businesses and institutions.



“This is a huge, Herculean effort,” he says. “It might not work.”



Santos says he would likely start the venture in Europe. He understands “how banks operate” on the continent, “whether it&#8217;s in the UK, France, or Switzerland.” The <a href="https://blockworks.co/news/european-parliament-mica-doesnt-touch">recently established MiCA framework</a> opens up more possibilities, he says.



<h2>JP Morgan quality</h2>



Podcast host Jason Yanowitz pauses and asks Santos, “How serious are you about this?”



He replies, “Pretty serious. I&#8217;ve been in ongoing discussions for the last three months.”



Santos says he would hire executives from both crypto and traditional capital markets to run the show. “If Jamie Dimon doesn&#8217;t run for President of the United States,” Yanowitz smiles, “maybe go talk to him.”&nbsp;



Santos laughs, replying “someone like that, plus also someone in the <a href="https://blockworks.co/tag/regulation">regulatory policy</a> side that really understands crypto.”



<iframe loading="lazy" frameborder="0" height="200" scrolling="no" src="https://playlist.megaphone.fm/?e=BWG5929329742" width="100%"></iframe>







The key to moving forward, Santos says, is to get a banking license, “and part of getting the license is having a good team.”



Yanowitz suggests buying a license from a distressed business as a shortcut, but Santos promptly shuts down the idea. “I want a clean slate and to make this splash because I&#8217;ve hired the top executives and a serious team.”



“I want <a href="https://blockworks.co/tag/jpmorgan">JP Morgan</a> quality,” he says, adding that he wants to build with “high quality, talented individuals” to dominate the market, starting in Europe and building out from there.



“Crypto deserves a good bank and a serious team.”



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‘Crypto Deserves a Good Bank’ — Investor Santos Says He’s Building It

James Cirrone

Just days after <a href="https://blockworks.co/news/binance-layoffs-talent-density">reports of layoffs at Binance</a> this week, the world’s largest crypto exchange tapped Richard Teng to lead all regional markets outside of the US.&nbsp;



This move is in stark contrast to Binance’s outlook for the rest of its staff. The exchange told Blockworks this week that it&#8217;s in the process of re-examining employees in top roles and determining which products and business segments deserve the most resources.&nbsp;



Teng appears to be one individual who’s been looked on kindly as the company evaluates its employees, as he has been promoted to Head of Regional Markets, effective Monday. It’s a step up from his previous duties overseeing markets in Asia, Europe, Middle East and North Africa, Bloomberg <a href="https://www.bloomberg.com/news/articles/2023-05-29/binance-taps-teng-to-run-all-regional-markets-in-swift-ascension">reported</a>.&nbsp;



In total, Teng has served in four prior positions at Binance, <a href="https://www.binance.com/en/blog/leadership/former-abu-dhabi-global-market-ceo-richard-teng-joins-binance-singapore-as-chief-executive-421499824684902583">starting out</a> in August 2021 as the CEO of its Singapore operations.&nbsp;



Before Binance, Teng has had extensive experience working with financial regulators. He <a href="https://www.weforum.org/people/richard-teng">headed</a> up the Financial Services Regulatory Authority for the Abu Dhabi Global Market from 2015 to 2021. Before that, he was the chief regulatory officer for Singapore Exchange Limited, a stock exchange and clearing house. In that role, he worked closely with “the Monetary Authority of Singapore (MAS) to uphold a fair, orderly and transparent market,” <a href="https://www.linkedin.com/in/richard-teng-3497b527/">according</a> to his LinkedIn.



Teng’s rapid ascension of the ranks comes as Binance falls in the crosshairs of regulators around the world. In May, Binance was served with documents regarding a Canadian probe into the exchange’s <a href="https://blockworks.co/news/binance-canada-probe">alleged violation of Ontario securities laws</a>. Two days later, Binance announced <a href="https://blockworks.co/news/binance-leaving-canada">it was leaving Canada</a>, citing a hostile regulatory environment.



The US CFTC also sued Binance and CEO Changpeng Zhao in late March, claiming the executive and his company broke trading and derivatives laws. Notably, <a href="https://blockworks.co/news/bitcoin-and-ether-are-commodities-says-cftc-in-binance-lawsuit">the CFTC said bitcoin and ether were commodities</a> in its complaint, contradicting the <a href="https://blockworks.co/news/coinbase-sec-rulemaking-petition">SEC’s lack of clarity</a> on the commodity-security debate.&nbsp;



<h2>Nansen lays off 30% of staff</h2>



On-chain insight provider Nansen announced on May 30 that they were paring back their team by 30%. Forbes reported that 43 employees lost their jobs.&nbsp;



Alex Svanevik, co-founder and CEO of Nansen, released a statement on Twitter explaining the reasons why the job cuts had to be made. In his tweet, he attributed the layoffs to two things: hiring too quickly during Nansen’s initial years and the crypto downturn. Svanevik said he took “full responsibility” as CEO.



“We scaled up the team on the back of breakneck growth in our first years of operating. We wanted to invest and build in a tough market when others needed to scale back. This organic growth led the organization to taking on surface area that&#8217;s not truly part of Nansen&#8217;s core strategy,” Svanevik said.&nbsp;



He continued: “Our cost base is too high relative to where the company is today. We do have several years of runway, but our priority is to build a sustainable business.”



<h2>Other notable hires</h2>



<ul>
<li>Author of “The Bitcoin Standard,” Saifedean Ammous, is <a href="https://twitter.com/bitcoinofficesv/status/1663530702791655424">joining</a> The National Bitcoin Office of El Salvador as an economic advisor.&nbsp;</li>



<li>Crypto venture firm Electric Capital <a href="https://www.theblock.co/post/232909/electric-capital-appoints-two-new-general-partners">appointed</a> Ken Deeter and Maria Shen as general partners on Friday.&nbsp;&nbsp;</li>



<li>Unicoin invited Pilar Manchón, Senior Director of AI Research Strategy at Google, to join its board of directors.</li>
</ul>



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Crypto Hiring: Binance Promotes Exec to Regional Markets Head, Re-examines Remaining Staff

In a DAO community poll, a split vote scenario was enough to hold back a proposed Uniswap V3 fee switch that had seen popular support.



A recent <a href="https://blockworks.co/news/uniswap-governance-fee-proposal">GFX Labs proposal</a> aimed to charge liquidity providers a fraction of fees across Uniswap V3 pools, with earnings then redistributed to the UNI community. Even though a total of <a href="https://blockworks.co/news/uniswap-doesnt-pass-fee-switch">more than 50%</a> of UNI tokens were in favor of turning on fees, it wasn’t enough for the feedback proposal to pass.&nbsp;



The vote in support of fees was split between a range of options, pitted against a singular “no fee” vote. The proposal had shown “pretty broad base support,” according to <a href="https://blockworks.co/podcast/bellcurve/ba2d3456-0160-11ee-bc39-fb2d3ac87bd8">Bell Curve podcast</a> host and Blockworks co-founder Mike Ippolito, but failed by a “relatively slim margin.”



“The whole vote,” Blockworks co-founder Jason Yanowitz says, “was structured incorrectly.”



“If you actually look at the vote,” Yanowitz added, the fee switch failed “even though there are more votes in favor of adding a fee than not adding.”



The exact fraction of the proposed fee was split between three possibilities; 1/5, 1/6 or 1/10, while only a single option to vote against any sort of fee was offered. Yanowitz points out that a total of 22 million UNI voted in favor of turning on some sort of fee, but the 18 million who were opposed to fees ended up winning anyway.



“So there should have been two separate polls here.”



“There should have been a yes or no fee switch,” he says, “and then if it said ‘yes’ for the fee switch, it should have been, how big should the fee switch be?”



A series of polls were planned, Framework Ventures co-founder Michael Anderson noted, first to determine fee options, followed by a second regarding the initial deployment chain and a third determining assets held in treasury.&nbsp;



“The first poll,” Anderson says, should have been “whether or not to go forward with this” rather than choosing between fee options. “And that&#8217;s what they should have been voting on here.”



<h2>Consensus is building</h2>



Based on the popular vote, Yanowitz says that “the fee switch is getting closer” to acceptance.



Framework Ventures co-founder Vance Spencer concurs, adding “I wouldn&#8217;t say this is a failure.”



“It seems like the consensus is building,” he says. “I think about Uniswap on the path to this fee switch and then what they will do with it, not whether this is gonna happen at all.”



Ippolito suggests one of the reasons fee switches are being held back is that individual delegates at Uniswap may be fearful of personal liability. He explains that a <a href="https://blockworks.co/news/sec-lowers-lbry-fine">recent SEC lawsuit</a> versus LBRY implied that the limited liability protection enjoyed by corporations in America might not extend to DAOs.



“If a fee switch is turned on,” Ippolito says, “then the token ends up looking a lot more like a security than it does today.”



“That hasn&#8217;t been decided yet. That is still in process,” Anderson says.



“The argument put forth is that, in fact, these DAOs are more like unincorporated partnerships,” Anderson says, “which don&#8217;t incur the limited liability protections that you would have with these other legal entity structures.”



Spencer adds, “You should view this as a startup working in the most punitive jurisdiction in the most, probably, punitive potential asset.”



“It&#8217;s pretty interesting, bullish and optimistic that they&#8217;re going down this path despite all of that.”



<h2>Bad timing?</h2>



Yanowitz says now is not the right time to switch fees on anyway. “Why would you turn on the fee switch right now?” he asks.&nbsp;



“Think about turning on the fee switch in a bull market.”



“That is a huge token catalyst,” he says. “You are just wasting that big opportunity in the bear markets.” 



<iframe loading="lazy" frameborder="0" height="200" scrolling="no" src="https://playlist.megaphone.fm/?e=BWG5848266796" width="100%"></iframe>







Another reason, Yanowitz adds, “is you&#8217;re turning on a fee switch at the most risky time in the history of crypto regulation.”



“The legal and tax implications of turning on the fee switch right now are massive,” he says. “Why take that risk?”



Ippolito counters, “One of the advantages of the bear market is that you have cover.”



“The stakes feel much higher when it&#8217;s a bull market and everything is growing super fast and competition feels really fierce,” he says. “This is the period of time that you have to experiment.”



“If you don&#8217;t take risks now, you&#8217;re not gonna do it during the bull market.”



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Uniswap Fee Feedback Vote Failed Because It Was ‘Structured Incorrectly’

Casey Wagner

Reps. Patrick McHenry, R-N.C., and Glenn Thompson, R-Penn., released a draft bill Friday afternoon detailing how the committee chairs think the SEC and CFTC should divvy up crypto regulation responsibilities.&nbsp;



After congressional leaders were able to come to an agreement and send a debt ceiling deal to President Biden’s desk, top House Republicans had turned their attention to crypto with a new legislative proposal.&nbsp;



The draft approach focuses on token classification, CFTC and SEC jurisdictions, and opening up access for crypto trading.&nbsp;



The bill sets up a process for token issuers to petition for their currencies to be considered commodities, as long as the project is sufficiently decentralized. The CFTC will be tasked with overseeing digital commodities, but the SEC can attempt to classify tokens as securities if the agency can successfully make the case to do so.&nbsp;



“The Act includes definitions for a decentralized network and a functional network and provides a certification process under which a digital asset issuer may certify to the SEC that the network on which the digital asset relates is decentralized,” lawmakers wrote in the draft summary. “The SEC may object to the certification if the SEC determines the certification is inconsistent with the Act, but must provide a detailed analysis of its reasons for doing so.”



Reps. McHenry, who heads the House Committee on Financial Services, and Thompson, chair of the House Committee on Agriculture, believe the current guidelines around crypto hinder innovation and fail “to provide adequate consumer protection,” according to the <a href="https://docs.house.gov/meetings/AG/AG00/20230606/116051/HHRG-118-AG00-20230606-SD002.pdf">draft</a> summary.&nbsp;



The bill also allows for the secondary sale of digital commodities after initially being sold as investment contracts and permits digital asset trading platforms to register as alternative trading systems.&nbsp;



Although the draft has not made it to the floor for a formal introduction, early reception from the industry was largely positive Friday afternoon.&nbsp;



&#8220;We appreciate the historic joint-committee efforts by FSC &amp; Ag Comms to create a comprehensive framework for centralized crypto-asset activity in the United States,” Polygon Chief Policy Officer Rebecca Rettig said in a statement. “The bill creates a sensible starting point to ensure a robust framework for the industry, and to ensure the U.S. remains competitive in allowing this technology to be built here.”&nbsp;



The offices of McHenry and Thompson did not immediately respond to Blockworks’ request for comment.



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House Republicans Look to Referee the CFTC-SEC Crypto Turf War

Katherine Ross

A Bureau of Labor Statistics report released on Friday morning showed yet another month of hot employment data, prompting more discussion about what the Fed will do when it meets later this month.&nbsp;



Odds show a 67% chance that the <a href="https://blockworks.co/tag/federal-reserve">Federal Reserve</a> will keep current rates, with a 33% chance that the Fed decides to hike 25 basis points, according to the CME’s <a href="https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html">FedWatch</a> tool.



Bitcoin (<a href="https://blockworks.co/price/btc">BTC</a>), meanwhile, managed to retake $27,000 and has held on to the level throughout Friday trading.&nbsp;



On Wednesday, Daily Price Action’s Justin Bennett <a href="https://dailypriceaction.com/crypto/bitcoin-what-todays-selloff-means-for-june/">wrote</a> that the selloff earlier in the week “means the $27,500-$27,650 area flips back to resistance. It also re-exposes the $26,500 support region.”



Right after the jobs report release, odds of no hike for the Fed were at 72% compared to a 27% chance of a 25 basis point hike.&nbsp;



Both Fed Governor Philip Jefferson and Philadelphia Fed President Patrick Harker voiced their support for no rate hike in June prior to the release of the jobs data, with Harker calling it a “skip.”



However, Harker noted that the jobs report “may change my mind.” The <a href="https://t.co/ZwrVfLviqL">report</a> was strong, though the unemployment rate ticked up.



The economy added 339,000 jobs last month, once again topping expectations of 195,000. Unemployment jumped to 3.7%, above the expected 3.5%.&nbsp;



“Markets may obsess over job statistics, but their role in determining the trajectory of inflation and interest rates is debatable,” Noelle Acheson <a href="https://noelleacheson.substack.com/p/friday-june-2-2023?utm_source=post-email-title&amp;publication_id=1104537&amp;post_id=125501145&amp;isFreemail=true&amp;utm_medium=email">wrote</a> in her Substack, Crypto Is Macro Now.&nbsp;



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">so, US unemployment came in higher than expected to reach a 7-month high of 3.7% &#8211; but actual employment also came in *much* higher than expected, even though participation rate was more or less unchanged and this is all very confusing <a href="https://t.co/Z0hVmTCTSu">pic.twitter.com/Z0hVmTCTSu</a>&mdash; Noelle Acheson (@NoelleInMadrid) <a href="https://twitter.com/NoelleInMadrid/status/1664612393719156737?ref_src=twsrc%5Etfw">June 2, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



But the report isn’t the only macroeconomic factor playing into the overall market mood going into the weekend.&nbsp;



The Senate passed a debt ceiling deal late Thursday, just barely ahead of the June 5 deadline suggested by Treasury Secretary <a href="https://blockworks.co/tag/janet-yellen">Janet Yellen</a>. Yellen warned legislators on Capitol Hill that the Treasury wouldn’t have enough money to pay off all of its bills if a deal wasn’t pushed through before June 5, meaning that a default was possible.



The package — negotiated by House Speaker Kevin McCarthy and President Joe Biden — suspends the debt ceiling into early 2025 and advances the Mountain Valley Pipeline as well as changes work requirements for federal food aid.



On top of the macroeconomic picture, the VIX — an index used to gauge overall market volatility — is at a 52-week low. The lower the VIX gets, the cheaper options prices become while options prices become more expensive when the VIX is higher.&nbsp;



The gauge of a so-called normal VIX — what traders look for in other words — is 21. At the time of publication, it had dropped to 14.&nbsp;



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">A <a href="https://twitter.com/search?q=%24VIX&amp;src=ctag&amp;ref_src=twsrc%5Etfw">$VIX</a> under $14.10 takes up to pre Covid <a href="https://t.co/Yj4G7iYEDA">pic.twitter.com/Yj4G7iYEDA</a>&mdash; Tom Hearden (@followtheh) <a href="https://twitter.com/followtheh/status/1664674982352265217?ref_src=twsrc%5Etfw">June 2, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



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Market Focuses on Possible Hike ‘Skip’ in June After May Jobs Report

Bessie Liu

Zero-knowledge rollup solution zkSync Era has added its first liquid staking protocol, Rocket Pool, to its network.&nbsp;



ZkSync Era <a href="https://blockworks.co/news/zksyncs-evm-era-opens-to-the-public">first launched</a> on Ethereum in March. Including Rocket Pool, 58 projects are now live and operating on the layer-2 solution.



Users will have the ability to stake ether (<a href="https://blockworks.co/price/eth">ETH</a>) on Era through holding <a href="https://blockworks.co/price/reth">rETH</a> in their wallets, with staking rewards occurring automatically, just like on mainnet.&nbsp;



Nick Ashley, Rocket Pool’s marketing manager, told Blockworks that Rocket Pool has had to face specific challenges that present themselves in keeping the protocol running smoothly while staying true to the ethos of decentralization and remaining permissionless.&nbsp;



“These include shuttling validator statuses and balances from the Beacon Chain to the Execution Layer, monitoring for protocol compliance, and calculating rewards,” Ashley said.



The liquid staking derivative is keeping a close eye on industry developments, whether that’s distributed validator technology or zero-knowledge (zk) proof technology, Ashley noted.



Following its deployment on Era, Rocket Pool’s research team has been looking into how zk proof technology could assist in the competing oracle tasks in an even more decentralized way than it is currently.



“Potential benefits include lower costs, increased efficiency and reliability, and an overall more streamlined system,” Ashley said. “But at the same time, this is juxtaposed with an abundance of caution and strong safety culture.”



The liquid staking derivative is currently also deployed on optimistic rollups Arbitrum and Optimism, and Ashley remains cautious about deploying on new networks.&nbsp;



“The main factors that would be considered when choosing which network to launch on are whether there are similar shared core values […] we are committed to helping the ecosystem to grow and scale while also remaining secure and decentralized. We are always open to considering a launch elsewhere but don&#8217;t have any immediate plans right now.&#8221;



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zkSync Era Welcomes its First Liquid Staking Protocol

Bankrupt crypto exchanges and Web2 digital payment apps have something in common: They aren’t insured by the FDIC, the Consumer Financial Protection Bureau (CFPB) reminded users this week.&nbsp;



In a Thursday release, the CFPB warned users that keeping cash in apps like Venmo, Cash App and PayPal is inherently dangerous.&nbsp;



“Billions of dollars” are currently stored in apps like <a href="https://blockworks.co/tag/venmo">Venmo</a> and <a href="https://blockworks.co/tag/paypal">PayPal</a>, the release said, but if these platforms were to go under, there is no guarantee clients would be made whole.



The companies disclose as much in their published legal terms. For instance, PayPal <a href="https://www.paypal.com/us/legalhub/pp-short-form">notes</a>, “FDIC insurance does not protect you against the failure of PayPal,” but individual consumers may nevertheless be unaware.



&#8220;Popular digital payment apps are increasingly used as substitutes for a traditional bank or credit union account but lack the same protections to ensure that funds are safe,” CFPB Director Rohit Chopra said in the <a href="https://www.consumerfinance.gov/about-us/newsroom/cfpb-finds-billions-of-dollars-stored-on-popular-payment-apps-may-lack-federal-insurance/">release</a>.



Similarly, crypto exchanges such as Coinbase and Gemini are not insured by the Federal Deposit Insurance Corporation (<a href="https://blockworks.co/tag/fdic">FDIC</a>). Bankrupt firms including <a href="https://blockworks.co/tag/voyager">Voyager</a> Digital, <a href="https://blockworks.co/tag/celsius">Celsius</a> and <a href="https://blockworks.co/tag/blockfi">BlockFi</a> are among many crypto companies that operated banking services without protection under the government.&nbsp;



The FDIC has for months attempted to crack down on crypto companies using “misleading” statements about their status as insured institutions.&nbsp;



In a July 2022 cease and desist <a href="https://www.fdic.gov/news/press-releases/2022/pr22056.html">letter</a> to Voyager Digital, the FDIC alleged the brokerage firm falsely advertised itself as an insured institution. 



“Based on the information gathered to date, it appears that these representations likely misled and were relied upon by customers who placed their funds with Voyager and do not have immediate access to their funds,” the FDIC said in the letter. 



Voyager advertised to clients that deposits of up to $250,000 would be insured through the FDIC because Voyager had partnered with FDIC-backed Metropolitan Commercial Bank to maintain a deposit account on behalf of users.&nbsp;



“Voyager is not itself insured by the FDIC, though, and so customers who invested through its cryptocurrency platform would not receive insurance coverage in the event of Voyager’s failure,” the FDIC added in the letter.&nbsp;



In August 2022, the FDIC informed crypto safety information provider CryptoSec.info, now known as ChainSec.io, incorrectly was advertising certain crypto exchanges as being FDIC insured. 



“The FDIC does not insure any crypto exchanges,” the <a href="https://www.fdic.gov/news/press-releases/2022/cryptosec-info-letter.pdf">letter</a> stated.



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Not Just a Crypto Issue: PayPal and Venmo Lack FDIC Insurance Too

Rena Shah

Bitcoin price predictions are always absolutely everywhere. Everyone who pays attention to crypto, whether for investing, building or entertainment, cannot avoid reading daily wild headlines about where the price of BTC is heading.



“The Fed May Have Just Triggered a $100 Billion Bitcoin Price Boom as Ethereum Surges Back,” “Bitcoin Price Drops Below $28,000 Post Labor Day – Rough Road Ahead,” and “Bitcoin at $100,000? Insiders Say the Cryptocurrency Could Test New Highs This Year,” are some of my recent favorites.



From $1,000,000 price bets to the proverbial “imminent crash,” those who have been around long enough in this space have either learned to tune predictions out or play into their hyped narrative themselves.&nbsp;



With the <a href="https://blockworks.co/news/bitcoin-litecoin-halvings" target="_blank" rel="noreferrer noopener">next bitcoin halving event</a> less than a year away, it’s a given that prices will move, maybe even wildly. So it’s time we stop predicting the price of bitcoin like it’s something interesting, useful, or even, frankly, predictable at all.&nbsp;



Instead, there’s an argument to be made that a new challenger to the bitcoin price prediction has entered the room — a contender for new predictions that could actually bring some useful insight to the community.



The challenger? Bitcoin transaction fees.



If we were able to provide more insight about bitcoin transaction fees, our predictions could actually be useful instead of hollow headline grabbers&nbsp;— we could help users find the lowest fee moments to dive into new use cases on Bitcoin, or help builders develop and scale Bitcoin layers more efficiently.



<h2>Bitcoin was meant to scale</h2>



<a href="https://trends.google.com/trends/explore?date=today%205-y&amp;q=bitcoin%20transaction%20fee">Interest</a> surrounding all aspects of the Bitcoin blockchain has hit record levels, as <a href="https://blockworks.co/tag/ordinals" target="_blank" rel="noreferrer noopener">Ordinals</a>, Stamps, BRC-20 tokens and other new protocols have sprouted up this year. Bitcoin’s average daily transactions over seven days reached <a href="https://blockworks.co/news/bitcoin-transactions-record-ordinals" target="_blank" rel="noreferrer noopener">record highs</a>, the first time it’s done so since December 2017. We’re entering this era where people actually want to do something more with Bitcoin than just point out its price.



Glassnode <a href="https://studio.glassnode.com/metrics?a=BTC&amp;m=transactions.Count&amp;mAvg=7&amp;s=1682985600&amp;u=1685505599&amp;zoom=">reported</a> that the average transactions reached 586,704.42 throughout May. The average transaction fee reached as high as <a href="https://blockworks.co/news/binance-bitcoin-withdrawals" target="_blank" rel="noreferrer noopener">seven dollars</a>, as Ordinal inscriptions surpassed three million in May 2023.&nbsp;



The thing we have forgotten is <a href="https://blockworks.co/tag/bitcoin" target="_blank" rel="noreferrer noopener">Bitcoin</a> was always meant to scale. Low fees were always going to be temporary. That’s why Bitcoin layer-2 solutions exist. As is the case with every other major layer-1 blockchain, when the base layer began to bloat, layer-2s were designed to efficiently scale usage and reprioritize where demand went toward the base layer. 



Read More: <a href="https://blockworks.co/news/ron-desantis-bitcoin-politics">Ron DeSantis Posturing On Bitcoin Is Just Performative Politics</a>



The Bitcoin builders community has <a href="https://blockworks.co/podcast/empire/5dbdd774-f8ec-11ed-9fad-4b0caf9e5c8d" target="_blank" rel="noreferrer noopener">talked</a> about the idea of DeFi and other use cases coming back to Bitcoin from other layer-1s for years, and now we are seeing that prediction become a reality. This revival of activity for Bitcoin means that the day-to-day price of transaction fees is going to matter more for many users than the daily moving average cost of one BTC.



I’ll go first with this new prediction model.



I predict that we will see another 10x from here in transaction fees.&nbsp;



As the Bitcoin thesis continues playing out, and as layer-1 apps grow and scale into layer-2s, we will see multiple spikes in the daily transaction price that will worry some and excite others. Ultimately, the higher fees will benefit the entire Bitcoin community.&nbsp;



Now, it’s your turn.



<hr class="wp-block-separator has-alpha-channel-opacity"/>


<div class="wp-block-post-author-biography">Rena Shah is the Head of Operations &amp; Strategy at Trust Machines, a company building the largest ecosystem of applications on Bitcoin. Previously, she was the Head of Exchange at Binance.US, where she grew the exchange from $30M to $3B in daily trading volume within 18 months. Shah is a veteran in the crypto space with previous roles at Ember Fund, a retail-focused app, and with a market maker, Apifiny. Rena spent time on the commodities side with a unique background as a drilling engineer. She spent her early career offshore on drilling rigs while spinning up Bitcoin mining pools. 
</div>


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Stop. Predicting. Bitcoin’s. Price.

In a third amended complaint, plaintiffs in a class action lawsuit against Tesla CEO and Twitter owner Elon Musk are making fresh allegations centered around dogecoin (<a href="https://blockworks.co/price/doge">DOGE</a>) and insider trading. Among them: That Elon Musk himself “manipulated the market of Bitcoin.”



In the complaint, which was filed on Wednesday, the plaintiffs allege that “Dogecoin is a domestic security subject to the Court’s jurisdiction under the Exchange Act.” The <a href="https://blockworks.co/tag/sec">SEC</a> has not alleged that dogecoin is a security.



Second, the <a href="https://cms.blockworks.co/wp-content/uploads/2023/06/Third-Amended-Complaint-2.pdf">new allegations</a> “plausibly allege” that Musk “also manipulated the market for Bitcoin while Tesla was trading that cryptocurrency.”



The third complaint names Musk and Tesla as defendants, and dropped the <a href="https://blockworks.co/tag/dogecoin">Dogecoin</a> Foundation.



Here’s a look at the new allegations:



<ul>
<li>Securities fraud: If not for Musk’s “material misstatements and omissions, Plaintiffs and the Class would not have purchased Dogecoin.” Plaintiffs also claim that this manipulation is supported by Musk’s “market manipulation of Bitcoin.”</li>



<li>Insider trading: Musk and Tesla artificially inflated the price of dogecoin to profit from it.</li>



<li>Common law fraud: Musk “knowingly and recklessly made material misrepresentations” to dogecoin investors.&nbsp;</li>



<li>Unjustly enriched: Plaintiffs argue that <a href="https://blockworks.co/tag/elon-musk">Musk</a> and Tesla were “unjustly enriched by billion of dollars” due to “undisclosed sales of dogecoin based on insider information.”</li>
</ul>



“The proposed amendments would not be futile because they provide further detailed factual allegations concerning Plaintiffs’ claim that Defendant Elon Musk has been manipulating the cryptocurrency market and that together with his company, Tesla, Inc., he insider traded on foreknowledge of his market manipulative moves,” lawyers wrote in the most recent complaint.



Back in February 2021, <a href="https://blockworks.co/tag/tesla">Tesla</a> purchased $1.5 billion in bitcoin and announced that it would be accepting payments in <a href="https://blockworks.co/price/btc">BTC</a>. However, in May, Musk announced that Tesla would not accept bitcoin for purchases and cited environmental concerns.



The complaint also alleges that Musk “took extensive responsibility for the Dogecoin enterprise as a whole, thus giving rise to the fiduciary relationship required to state a claim for insider trading.”



Though it’s not clear exactly how Musk took “responsibility” for dogecoin, the <a href="https://cms.blockworks.co/wp-content/uploads/2023/06/Third-Amended-Complaint-2.pdf">filings</a> cited “Dogecoin enthusiasts’ choice of Musk (from among four candidates) as ‘CEO’ was accepted by Musk.”



“The @dogecoin account then ‘quote retweeted’ Musk’s tweet with the remark, ‘It looks like you’re the CEO now, @elonmusk, DM [i.e., ‘direct message’] us where to email the access codes :-D’ and Musk replied, ‘Uh oh.’ Later that day, Musk tweeted a Dogecoin-themed meme,” the filing said.



Plaintiffs had <a href="https://cms.blockworks.co/wp-content/uploads/2023/06/Second-Amended-Complaint.pdf">previously claimed</a> that dogecoin counts as a security under the Howey test in the second amended complaint, which Musk’s legal team petitioned to dismiss back in March. The complaint alleged that Musk claiming that SpaceX would send Dogecoin “to the moon” in 2022 — which did not happen — was “deceptive” because it cannot be sent to the moon.



Musk’s <a href="https://blockworks.co/news/musk-dogecoin-lawsuit-memes">lawyers claimed that Musk</a> did not break any laws by tweeting “funny pictures about a legitimate cryptocurrency.”



On April 3 — days after Musk’s legal team asked the court to dismiss the second amended complaint — Musk changed the Twitter logo to the Doge logo. The complaint claims that the logo change happened in 2022, but it actually happened in 2023.&nbsp;



Read more: <a href="https://blockworks.co/news/musk-dogecoin-lawsuit-memes">Musk Lawyers Say ‘Nothing Wrong’ With Memes in $258B Dogecoin Lawsuit</a>



According to the newest complaint, the price of dogecoin spiked 30% and promptly fell when Twitter replaced the logo with the blue bird.&nbsp;



The lawsuit was <a href="https://cms.blockworks.co/wp-content/uploads/2023/06/original-complaint.pdf">first filed</a> in June 2022 following Musk’s infamous Saturday Night Live appearance. At the time, the plaintiffs made a series of allegations against Musk and Tesla, including that Musk is a “partner in the Dogecoin Crypto Pyramid Scheme.”



It cited his tweets and comments about dogecoin going back to 2019, and claimed that the defendants had committed wire fraud, gambling, negligence and deceptive practices.&nbsp;



“Plaintiffs motion for leave to file that complaint is likely to be granted, since there is not likely to be any prejudice against the Tesla Defendants, and leave to file an amended complaint is freely to be granted,” Judge Alvin Hellerstein wrote in a <a href="https://cms.blockworks.co/wp-content/uploads/2023/06/Judge-Ruling-on-DOgecoin-Lawsuit.pdf">document</a> released on Wednesday.



According to a <a href="https://cms.blockworks.co/wp-content/uploads/2023/06/memo-from-judge-elon-musk-class-action.pdf">memo</a> filed on Wednesday, the defendants have until June 14, 2023 to file an opposition to the amended complaint.



The lawsuit originally sought $258 billion. The fully-diluted market cap of dogecoin is about $10 billion.



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Plaintiffs in Dogecoin Lawsuit Against Musk Make Wild New Allegations

After seeking feedback on CBDCs in February, Kenya’s Central Bank (CBK) has come out with a firm position, saying that in the current environment, “a CBDC in Kenya may not be a compelling priority in the short to medium term.”&nbsp;



On top of that, CBK argued that “on the global stage, the allure of CBDCs is fading.”



Notably, CBK didn’t completely shut down the idea of a digital Kenyan shelling, pledging to monitor CBDC developments around the world and work with other central banks that have issued their own digital currencies, according to a press <a href="https://www.centralbank.go.ke/uploads/press_releases/103592893_Press%20Release%20-%20Issuance%20of%20Discussion%20Paper%20on%20Central%20Bank%20Digital%20Currency%20-%20Comments%20from%20the%20Public.pdf">release</a>.&nbsp;&nbsp;



CBK issued a discussion paper in February going over some <a href="https://blockworks.co/news/kenya-seeks-public-opinion-on-potential-cbdc">possible deployments of a CBDC</a> and has now received over 100 responses from individuals, commercial banks, payment service providers and others.&nbsp;



Some of the benefits respondents highlighted included lower transaction costs, better foreign exchange rates and increased transparency.&nbsp;



One notable downside that the CBK mentioned was financial exclusion, which could very well happen if certain citizens don’t have access to the technology necessary to engage with the digital currency. A large majority of respondents, 87%, told CBK it was the job of the central bank to prevent that from happening.



Other risks CBK listed were disintermediation of banks, high implementation costs, and cyberattacks.&nbsp;



Additionally, CBK has witnessed some of the issues nations that have launched CBDCs have faced, so it has decided to take a wait and see approach.



“Central banks that were first to roll out CBDCs have recently faced challenges that have hampered implementation,” the central bank said in its statement. “Major global central banks have deferred the decision on the adoption of CBDCs. This measured approach is consistent with the approach that CBK is taking.”



So far, 11 countries — most of them Caribbean nations — have created CBDCs, according to the Atlantic Council’s CBDC <a href="https://www.atlanticcouncil.org/cbdctracker/">tracker</a>.



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‘Allure of CBDCs Is Fading’ Globally, Says Kenyan Central Bank

For any decentralized finance or DeFi ecosystem to function efficiently, stablecoins are crucial. They enable liquidity — the easy movement of value from one place to another — with less friction and volatility risk.



Both <a href="https://blockworks.co/tag/ethereum">Ethereum</a> and <a href="https://blockworks.co/tag/solana">Solana</a> have enjoyed vibrant <a href="https://blockworks.co/tag/defi">DeFi</a> environments, at least partly due to the ease of access to stablecoin utility within their networks. This has not yet been the case for the appchain ecosystem that calls itself the “internet of blockchains” — <a href="https://blockworks.co/tag/cosmos">Cosmos</a>.



The folks at Noble and Celestia are well aware of this shortcoming. Recently deciding to team up for the cause, the companies behind <a href="https://blockworks.co/news/noble-solve-cosmos-liquidity">Noble</a>, a general asset issuance chain and <a href="https://blockworks.co/news/celestia-raises-55-million-for-new-modular-blockchain">Celestia</a>, a <a href="https://blockworks.co/news/sovereign-rollups-blockchain-scaling">data availability</a> (DA) layer, are together building native <a href="https://blockworks.co/tag/stablecoins">stablecoin</a> capacity into the Cosmos ecosystem.



On the <a href="https://www.youtube.com/watch?v=OPVvYCMXaR8">0xResearch podcast</a>, Blockworks Research senior analyst Sam Martin says the two companies are partnering up to “enable the minting of native <a href="https://blockworks.co/price/usdc">USDC</a>, by default, for any modular chain that leverages Celestia as a DA layer.”



The move is an important step, Martin says. “In order to have a vibrant DeFi ecosystem, stablecoins are incredibly important.” Stablecoin tokens like USDC and USDT allow investors to generate yield on digital assets while minimizing the risks of market volatility through the token’s steady value, which is pegged to fiat currency.



“That&#8217;s been a main pain point for Cosmos,” Martin says, “but now that they have USDC, I feel like there&#8217;s gonna be a lot less liquidity fragmentation.”



“I definitely think that this is a huge development,” Blockworks Research analyst Ryan West agrees. “The reason that their DeFi hasn&#8217;t taken off, despite them being around for a while, is because there wasn&#8217;t that native stablecoin.”



The ability to use <a href="https://blockworks.co/tag/circle">Circle</a>’s USDC stablecoin natively via Celestia’s DA layer will “supercharge” growth for the ecosystem, West believes.&nbsp;



Celestia is a layer-2 <a href="https://blockworks.co/tag/rollups">rollup</a> that uses light nodes to verify that transaction data is public and available “without needing to download all the data for a block.” This is achieved through a mechanism called “data availability sampling,” according to the company <a href="https://docs.celestia.org/concepts/data-availability-faq/">website</a>.



“I think it&#8217;s really gonna jump-start things,” West says.



<h2>Will Tether miss out?</h2>



Blockworks Research analyst Dan Smith asserts that USDC will enjoy “first-mover advantage” as the first native fiat stablecoin in the ecosystem. He imagines the move might encourage leading stablecoin issuer, Tether (<a href="https://blockworks.co/price/usdt">USDT</a>) to “copycat” and follow in Circle’s footsteps, “but we haven&#8217;t seen any of those actions being taken.”



Three major ecosystems — Solana, Ethereum and the Cosmos ecosystem of appchains — have been at the forefront of development over the past year, Smith says.&nbsp;



<iframe loading="lazy" frameborder="0" height="200" scrolling="no" src="https://playlist.megaphone.fm/?e=BWG6523656089" width="100%"></iframe>







“We already have USDC and Tether on Solana,” Smith adds, in addition to their presence on Ethereum and its <a href="https://blockworks.co/tag/layer-2-2">layer-2s</a>, but “we haven&#8217;t really seen that happen in the Cosmos ecosystem.”



Smith says he wonders if <a href="https://blockworks.co/news/cosmos-circle-stablecoin-usdc-noble">the addition of native USDC to Cosmos</a> may spark the beginnings of a “Cambrian explosion of Defi applications and use-cases” in the industry.



&#8220;And if we do start moving in this world,&#8221; he asks, &#8220;is this gonna be a miss for Tether?&#8221;



“It&#8217;s definitely good for Defi to have that <a href="https://blockworks.co/news/circle-backs-usdc-shorter-treasurys">trustworthy fiat stablecoin</a> that can provide that one-to-one pegged value,” but it would be preferable, he says, for “market diversity to shard some of the risk of relying on a single asset.”



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Cosmos Boards the DeFi Train with Native USDC Support

Ben Strack

As Japanese banks get set to issue stablecoins under new legislation, the US’ lack of regulatory clarity in the segment is one hurdle blocking institutions in the country from doing the same.



Japan in June 2022 <a href="https://blockworks.co/news/japan-passes-legal-framework-for-stablecoins">passed a legal framework for stablecoins</a>, which took effect Thursday.&nbsp;



The law requires that stablecoins — typically backed by one or more reserve assets — must be pegged to the yen or another legal tender and guarantee redemption to the holder at face value. It also confines the issuance of stablecoins to licensed financial institutions, such as registered banks, money transfer agents and trust companies.



The country’s step to bridge the gap between TradFi and DeFi with this initiative will benefit everyone in the long run, said David Tawil, co-founder of crypto fund ProChain Capital.



“In the US, most depositors, individual and business, have the benefit of free [automated clearing house] transfers intra-national,” he told Blockworks. “But, Japan’s initiative is a first step toward international frictionless, free money transfers.”



Updating from decades-old payment systems to cheaper and faster distributed ledger technology will always be a win for the customer, according to Jeff Embry, managing partner at crypto hedge fund Globe 3 Capital.



“The key will be making sure these stablecoins utilize a trustless, immutable and transparent blockchain versus being in control of one bank or one government like a CBDC would,” Embry added.



Tokyo-based GU Technologies in March <a href="https://prtimes.jp/main/html/rd/p/000000019.000083257.html" target="_blank" rel="noreferrer noopener">launched</a> a public blockchain — called Japan Open Chain — as a way to allow three Japanese financial institutions to experiment with issuing stablecoins complying with the country’s laws. The stablecoins would be compatible with Ethereum wallets via Metamask, for example.



Embry said that if Japanese banks only look to create their own stablecoins, the stablecoin ecosystem will struggle.&nbsp;



“We like to see stablecoins originate outside of the bank ecosystem bubble, as that is where true, immutable, transparent stablecoin innovation and adoption will prosper,” the Globe 3 Capital executive noted.



<h2>What would it take for US banks to issue stablecoins?</h2>



While regulations would be key for US banks to issue stablecoins, proposed bills on this subject <a href="https://blockworks.co/news/house-stablecoin-crypto-offshore">remain in flux</a>.&nbsp;



<a href="https://blockworks.co/news/house-hearings-deepening-party-divide">Recent hearings</a> by the House Financial Services and Agriculture committees show crypto regulation could be two or three years off, according to Compass Point Research &amp; Trading analysts Chase White and Joe Flynn.&nbsp;



“What we saw in these hearings is that members of Congress do not agree intraparty, much less interparty, on the basic tenets of even stablecoin legislation, which is seen by many observers as low-hanging fruit relative to comprehensive crypto legislation,” White and Flynn wrote in a research note last week.&nbsp;



Meanwhile, comments from regulators seem to contradict one another amid <a href="https://blockworks.co/news/house-grapples-with-stablecoins">a war to regulate the crypto space</a>. CFTC Chairman Rostin Behnam said in March stablecoins such as tether (<a href="https://blockworks.co/tag/usdt" target="_blank" rel="noreferrer noopener">USDT</a>) could be considered commodities, while SEC chairman Gary Gensler has claimed every crypto asset, besides bitcoin, could be a security.



Aside from a lack of movement and clarity from legislators and regulators, stablecoin adoption might be slow for big US banks who want customers to continue paying wiring fees.



“Banks are slow to adopt because they are the middlemen that blockchain eliminates,” Embry said. “Once customers see the huge benefits of using stablecoins the demand for them will be so great the banks won’t have a choice but to adopt them.”



JPMorgan offers JPM Coin, a permissioned payment rail and deposit account ledger for clients to transfer US dollars held with JPMorgan within the bank’s system. But Embry called the system more of a tool for clients than a true open-sourced blockchain stablecoin.



​​JPMorgan and consulting firm Oliver Wyman said in a joint <a href="https://www.oliverwyman.com/content/dam/oliver-wyman/v2/publications/2023/feb/oliver-wyman-jp--morgan-deposit-tokens-report-final.pdf" target="_blank" rel="noreferrer noopener">study</a> published earlier this year that <a href="https://blockworks.co/news/deposit-tokens-stablecoins-defi-jpmorgan">using bank-issued deposit tokens</a> to transfer value across chains is safer than using stablecoins.



Similar to his wish for Japanese institutions, Embry said he hopes US banks ultimately adopt stablecoins from third-party innovators rather than creating their own.&nbsp;



Tether’s stablecoin market capitalization <a href="https://blockworks.co/news/usdt-market-share-all-time-high">has surged in recent months</a> — standing at nearly $83.3 billion on Thursday. <a href="https://blockworks.co/news/circle-usdc-tether-competition">The market cap of competing stablecoin USD Coin</a> (USDC) was just below $29 billion.&nbsp;



“I think at some point, some country or countries around the world are going to lap us on this, and that’s when we’re going to get into gear here,” Tawil said of US stablecoin adoption. “We don’t do anything in this country until we’re under threat. Debt ceiling, case and point.”



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Japan’s New Stablecoin Framework Could Spur US To Act

Shalini Nagarajan

Given the <a href="https://blockworks.co/news/fed-payments-fednow-launch-july">upcoming launch</a> of the FedNow service, which aims to provide instantaneous payments and settlement, there is growing curiosity about how <a href="https://blockworks.co/tag/stablecoins" target="_blank" rel="noreferrer noopener">stablecoins</a> will adapt and remain relevant.



After all, stablecoins gained traction by addressing the sluggishness and outdated nature of the traditional US banking system.&nbsp;



FedNow is a centralized payment system provided by the Federal Reserve for instant interbank transactions, while stablecoins are decentralized digital assets that aim to provide stability and fast transactions by pegging their value to specific assets or currencies.



So, will stablecoins still have a place in the digital age? Indeed, according to Bitwise crypto research analyst Ryan Rasmussen, stablecoins are expected to maintain their relevance, for several reasons.



One big common factor between the two is that they are capable of processing transactions at any time, unlike traditional banking systems.



But ultimately, stablecoins come out on top with five clear advantages, according to Rasmussen, enumerated in a <a href="https://bitwiseinvestments.com/crypto-market-insights/five-reasons-why-fednow-fails-to-disrupt-stablecoins" target="_blank" rel="noreferrer noopener">blog post</a> published on May 31.



<ol>
<li>FedNow has limited utility and does not have a global reach</li>
</ol>



The analyst noted that stablecoins make the US dollar more accessible worldwide, helping in countries like Venezuela, Argentina, and Turkey where there are shortages of banknotes and high inflation.&nbsp;



By using platforms like Aave and Compound, stablecoins provide access to financial services and can make a positive difference for millions of people around the globe, he said.



<ol start="2">
<li>Stablecoins offer financial access for all</li>
</ol>



FedNow requires users to hold a US bank account, while stablecoins offer financial access without such limitations.



FedNow doesn&#8217;t help the millions of unbanked households, including marginalized communities, while stablecoins provide instant access to the financial system for anyone with a computer or smartphone, the analyst said.



<ol start="3">
<li>Stablecoins power on-chain transactions</li>
</ol>



Stablecoins have seen a massive surge in demand, with their total supply growing by a more than 8,000% since Jan. 2017, according to the researcher.



They are used in DeFi protocols, trading against cryptocurrencies like bitcoin and ether and for on-chain payments. Unlike FedNow, stablecoins allow dollars to exist on-chain, making them irreplaceable in these applications, he said.



<ol start="4">
<li>Stablecoins offer a way for individuals to send money overseas&nbsp;</li>
</ol>



Stablecoins are borderless and accessible anywhere, making cross-border payments more affordable and accessible. This is reflected in the growing popularity of stablecoin transfers, with over $17 trillion transferred to date, including $2 trillion in Q1 2023 alone, according to the data.



To put that in perspective, $2 trillion exceeds the total transaction volume processed by PayPal throughout 2022, he noted.



<ol start="5">
<li>Stablecoins have no limits on transaction size&nbsp;</li>
</ol>



Unlike FedNow, which imposes transaction limits, stablecoins have no such restrictions. Whether you&#8217;re sending $500 or $5,000,000, stablecoins can handle transactions of any size.



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Will Stablecoins Still Be Relevant After FedNow?

Interoperability protocol Connext has introduced chain abstraction with the goal of simplifying the layer-2 experience.



Similar to how account abstraction is designed to simplify the end-user experience with wallets, chain abstraction is designed to enable users to interact with multiple decentralized applications (dapps) on different chains without ever needing to leave the user interface.



Traditionally when interacting with layer-2s, users may need to bridge their funds to chain A if they want to use a specific liquidity pool on chain A, but they only have tokens available on chain B.



This makes for a complicated user experience and can often deter new users from wanting to transact in the space, as they will need to navigate the process of bridging, paying gas and depositing funds across different networks.



Many different protocols are working on resolving this issue, including Chainlink, LayerZero and Wormhole, to name a few. All of these protocols focus on cross-chain messaging, which enables smart contracts to communicate with each other.&nbsp;



Most of these protocols fall under the three most common bridges that exist today:



<ul>
<li>Native</li>



<li>Externally verified</li>



<li>Optimistic</li>
</ul>



Native bridges are completely trustless, Max Lomuscio, marketing lead at Connext Labs, told Blockworks. Transactions on native bridges are fully verified by one blockchain, but they often only work in one direction.&nbsp;



Another type of bridge — externally verified — uses external parties to verify transactions and relies on trust.&nbsp;



This includes the likes of Chainlink and LayerZero. On Chainlink, for example, users must trust that the oracle is accurate. With LayerZero, there is a 2/2 multisig, where two parties are responsible for all token bridging.



“The problem is that there is nothing to prevent these parties from colluding if they wanted to,” Lomuscio said.



Optimistic bridges are a third type. Similar to how rollups operate, transactions that pass through optimistic bridges must be quarantined for 30 minutes before they are valid.&nbsp;



Lomuscio notes that “any watcher can submit a fraud-proof and slash the transaction, so you only need one good actor to keep in the space watching the transactions to keep the system secure.”



Connext claims that what it introduces with chain abstraction is completely trustless and fast.



“Connext plugs into native bridges to move the data using the most secure path. On top of it, we have an optimistic system so that we can shorten the time to move messages from rollups that would otherwise require seven days,” Lomusico said.&nbsp;



There is also a liquidity and execution layer — Lomusico explains, “where liquidity providers front cash to users immediately then wait for the 30 minute refund on the optimistic layer.”



The Connext toolkit has been audited and is available to developers on Ethereum, BSC, Arbitrum, Polygon, Optimism and Gnosis to use, Lomuscio said.&nbsp;



To use the toolkit, dapps on these platforms will have to import it into their own architecture, Lomuscio notes.&nbsp;



“It doesn’t require any change to their smart contracts although we recommend to customize their UI to make it seamless for their dapp,” he said.



Other chains that will be able to deploy the toolkit in the near future include Linea, Scroll, zkSync, Base and Polygon zkEVM, just to name a few.



“The idea is that with hundreds or thousands of [layer-2s] and [layer-3s] that will launch on the market in the coming years, the experience of users will be completely fragmented and disrupted,” Lomusico said. “The only way for dapps to enable a seamless experience is to abstract the concept of chains and the underlying tech stack in general.”



This is similar to what exists in the internet world today, where users are unaware of which server or storage system websites are running on, Lomusico noted.



Dapps that have already adopted the chain abstraction concept today are betting platform Prode and liquidating bootstrapping protocol Fjord. Other dapps integrating the Connext toolkit still largely remain on testnet, with mainnet launches planned for the coming weeks.



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